Fable of the Bees

I was inspired from the Blog The Big Picture to read the "Fable of the Bees" and how it relates to what is currently going on in the US economy versus Germany. More to the point it deals with the paradox of thrift, the idea that the more an individual saves, the less the whole group saves overall. Broadly the increase in savings will harm the over all economy. To me it is a no brainer, as long as people are out buying stuff, what ever that stuff may be, then in turn it keeps people making, shipping and selling that stuff. But during a recession, people panic and business lay-off as consumption slows. And here is where the paradox sets in, as people try and save more, they naturally spend less, and as the spend less more businesses panic and lay off more workers. While saving for the future, we are in turn killing that future.

Saving is not a bad thing, to me overspending is the problem. Buying with credit is not a bad thing, it becomes a bad thing when we use credit to buy disposable things. Buying a house is good, buying food is bad. But I get off my point, saving is not a bad thing, and by nature we should save when times get tough. That is why I am with Keynesians on this one, in recessions the government must step in and start consuming. Governments need to invest in infrastructure, be the ones who buy roads and bridges. I am all for the stimulus bill, I think this is an opportune time for the government to start investing. There is much complaining about the deficit running up, but when is a better time to borrow money than when the cost of borrowing money is at its lowest? With people still working, tax revenue is still being generated.

If the government gets involved and applies a slow steady hand then as a whole the economy will merely slow down and not stop. This will keep people working and will allow consumption to continue. This will also keep our infrastructure in good shape or improving what we already have. With Keynes solutions many problems can be avoided, the biggest is the paradox of thrift